Pa. Gov proposes gas-drilling tax in FY11 budget

HARRISBURG, Pennsylvania Feb 9 Pennsylvania
Gov. Ed Rendell on Tuesday proposed a $29 billion general fund
budget for fiscal 2011, a 4.1 percent increase over the current
budget that includes $2.76 billion in federal stimulus money.

The new budget avoids any broad-based tax increases but
would boost revenue by taxing natural gas drilling, cigars and
smokeless tobacco. It also eliminates vendor discounts for
on-time payments.

A sales and use tax would be cut to 4 percent from 6
percent and exemptions will be eliminated, while the corporate
net income tax would be cut to 8.99 percent from 9.99 percent.

None of the new revenue raised would be used in the coming
fiscal year but would be paid into a Stimulus Transition
Reserve Fund, designed to prepare the state for the end of
economic recovery funding from the federal government. That
fund could not be tapped until July 2011, about six months
after Rendell leaves office.

The budget "provides a blueprint to close the budget gap
expected when federal stimulus funds are no longer available in
2011," the Democratic governor said in a statement.

The end of stimulus funds would mean a projected revenue
gap of $2.4 billion in fiscal 2012, Rendell said. With the
addition of significant extra pension costs, the state's
projected deficit would rise to $5.6 billion in fiscal 2013.

The new budget would raise $160.7 million from a new
natural gas wellhead tax in the coming fiscal year, rising to
$1.8 billion over five years. The tax would be modeled on one
imposed in West Virginia and would raise badly needed state
revenue from the current boom in drilling in the vast Marcellus
Shale gas formation.

Rendell wants to charge drillers 5 percent of the value of
gas at the wellhead plus 4.7 cents per 1,000 cubic feet of gas
taken from the ground, starting July 1.

The largest revenue enhancement, of $531.5 million, would
come from cutting and broadening the sales and use tax. Taxes
on cigars and smokeless tobacco would raise $41.6 million,
while the elimination of vendor discounts for on-time payments
would generate $73.6 million.

The new budget reduces spending by 1 percent in all areas
except education, public welfare, aging, corrections and debt
service.

Spending of state dollars, at $26.3 billion, is $2 billion
less than in fiscal 2009.

Debt service is projected to rise to $1.024 billion in the
coming fiscal year from $932.6 million in fiscal 2010.
(Editing by Dan Grebler)

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